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Onward and upward for OPKO
MIAMI—OPKO Health Inc. is moving forward with its acquisition of Bio-Reference Laboratories Inc., having announced the early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. Other closing conditions include the approval of Bio-Reference’s shareholders, but the transaction—already approved by both companies’ boards of directors—is still expected to close in the second half of the year.
“I have long admired Bio-Reference Laboratories, which, for almost 30 years, has enjoyed an impressive record of organic growth through constant innovation and clinical awareness,” said Dr. Phillip Frost, chairman and CEO of OPKO. “Bio-Reference Laboratories is a true success story that has culminated in cutting-edge diagnostic solutions accompanied by a worldwide franchise in the diagnosis of rare diseases. GeneDx was the first commercial laboratory to offer next-generation sequencing for rare disorders and almost a quarter-of-a-million patients have benefited from these services, including almost 20,000 patients who have undergone exome analysis. Their newly introduced sequencing services for use in oncology are both innovative and impressive.”
OPKO announced the transaction in June with the news that it had signed a definitive merger agreement with Bio-Reference under which it would acquire the Elmwood Park, N.J.-based firm, which is the third-largest full-service clinical laboratory in the United States. Per the terms of the agreement, Bio-Reference shareholders will receive 2.75 shares of OPKO common stock for each share of Bio-Reference stock they hold; at $52.58 per share of Bio-Reference stock, the transaction is valued at roughly $1.47 billion.
“Over the years, we have learned that diagnostics are integral to drug discovery,” noted Dr. Marc Grodman, Bio-Reference’s chairman, CEO and president. “This has never been more apparent than today, when new sequencing technologies have afforded us the opportunity to understand the biological basis of disease in far greater depth. At Bio-Reference Laboratories, we have prided ourselves in finding disruptive diagnostic solutions that are clinically relevant. Dr. Frost is a visionary in the pharmaceutical world who, during a legendary career, has demonstrated the foresight to see new clinical applications for therapeutics before others. I am thrilled that I will be working and learning from him in the coming years as we seek to leverage our outstanding capabilities to improve lives of patients. In addition to identifying a synergistic partner for the value we have built over the past three decades, we are pleased that our shareholders will be rewarded by being able to share in the upside of the combined company.”
Once the deal is complete, OPKO means to allow Bio-Reference’s laboratory operations to continue as usual, though with enhancement from OPKO’s diagnostic product pipeline. OPKO’s existing diagnostic services will be merged with Bio-Reference operations throughout the country. In addition, OPKO plans to make use of Bio-Reference’s national marketing, sales and distribution resources to enhance sales of its 4Kscore test, a blood test that provides a patient’s personalized risk score for aggressive prostate cancer, as well as other OPKO diagnostic products under development.
Investor reaction to the deal has been mixed. Bio-Reference’s stock rose to $39.60 after the transaction was announced, but OPKO’s dropped 15 percent to $16.25. Just a few days later, however, it was up to $17.14. Some of that reaction could be attributed to Bio-Reference’s recent release of its financial results for the second quarter of the 2015 fiscal year. The company saw revenues of $224 million for the quarter, an 11-percent increase over the same quarter a year ago, with earnings per share of 38 cents, up from 37 cents in 2014. Both numbers fell short of analysts’ forecasts, which had been staked at an earnings per share of 43 cents and revenues of $227.33 million.
TheStreet’s Ratings team currently has OPKO’s stock rated as a Hold, noting that “The primary factors that have impacted our rating are mixed—some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company’s strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses, including feeble growth in the company’s earnings per share, deteriorating net income and disappointing return on equity.”
Motley Fool was a bit less ambivalent, commenting that this deal “transforms OPKO Health itself from a company with $30 million in sales last quarter into a laboratory leader with combined annualized sales north of $900 million. It also gives OPKO Health a profitable business unit that can help offset some of OPKO Health’s spending on drug programs, including its prohormone vitamin D drug Rayaldee and its human growth hormone drug hGH-CTP. Importantly, OPKO Health lands Bio-Reference Labs’ longstanding relationships with healthcare payers, including major insurers, which could expedite OPKO Health’s commercialization efforts for its 4Kscore blood test, which launched last year.”